Overall transaction volume is low, reflecting ongoing uncertainty among investors. Even so, the market is beginning to show more signs of life. For instance, liquidity in the multifamily market, while limited, is beginning to return across most submarkets – but not all.
Seattle
Transaction activity in Seattle, while still well below historical averages, appears to be slowly picking back up. And, along with this increase in sales has come greater clarity around underlying property values as the market adjusts to a higher interest rate environment.
Sales Insight
During the second quarter of 2024, there were 28 sales for a total volume of $735 million. This is up from 21 sales worth $140 million in the same period last year. In terms of dollar volume, the first half of this year is on par with the full year in 2023. At the same time, the average cap rate on buildings sold during the quarter was 5.4% – up from 4.9% one year ago and roughly in line with most other Puget Sound markets.
Rent/Vacancy Insight
Rents are holding fairly steady year-over-year in Seattle, up 1% from Q2 2023. As for vacancy, the market began to tighten last quarter as the newly delivered product continues to be absorbed. More precisely, vacancy rates among larger buildings (50 units or more) are still elevated relative to smaller buildings (8.6% versus 5.5% vacancy, respectively), largely due to the recent delivery of primarily larger product. Thus, as the construction pipeline continues to shrink due to higher financing and construction costs, we expect to see that vacancy delta narrow in the coming quarters.
North King
A healthy quarter of transaction activity in North King has brought back some clarity on pricing. This and a positive, but modest outlook for growth in rental rates and occupancy is helping to reduce uncertainty across the county.
Sales Insight
A material increase in liquidity in Q2 of this year has revived investor optimism and improved confidence in market values. In fact, with seven transactions in total, sales activity has already surpassed the total figure in 2023 (six sales). Granted, while these tended to be for smaller properties, this has nevertheless provided investors with a clearer picture of underlying values. Here, the average cap rate in Q2 of this year was 5.4%, up from 5.0% in 2023.
Rent/Vacancy Insight
Rents ticked up modestly across product types in North King, rising by 1% year-over-year. Plus, vacancy continued to tighten over last quarter as the wave of new supply is absorbed into the market. Given the lack of new supply under construction, we expect this absorption (and commensurate drop in vacancy) to continue throughout the remainder of the year.
East King
As one of only two markets where the number of sales was down year-over-year, investors in East King multifamily are still showing signs of caution as markets adjust to the newer, higher-rate financing environment.
Sales Insight
With only three transactions this last quarter, sales activity is still tepid in East King. Typically, the lack of activity would yield a word of caution in drawing any conclusions from the average cap rate this quarter (5.5%). However, with most markets around Puget Sound reading similarly, 5.5% is probably a fair guide as to the true cap rate in the county.
Rent/Vacancy Insight
Rent growth stood out in East King this quarter, particularly amongst larger (50+ unit) buildings, where rents shot up 7% year-over-year. Much of this growth came from the last quarter, when the average rental rate increased 4%. Notably, this jump came notwithstanding an increase in vacancy of 30 basis points (bps) to 5.1%. As such, East King continues to be a tight market with below-average vacancy across product types.
South King
While sales activity is showing signs of improvement year-over-year, the transaction market is far from recovered. That said, as the absorption of new product continues to deliver a slow, but steady decline in vacancy and increase in rents, we expect the market will adjust more smoothly to a higher-rate environment.
Sales Insight
Although still modest, South King saw a slight increase in transaction activity in the quarter and actually declined relative to Q1 of this year both in terms of number of sales and dollar volume. This past quarter, five buildings were sold for total value of $78 million. These sales continue to imply the same cap rates as seen last quarter (5.4%).
Rent/Vacancy Insight
Among the larger product, the increase in vacancy that we saw in the second half of 2023 continues to slowly return to historical averages as the newly delivered product is absorbed. Much like in other markets across Puget Sound, rents increased year-over-year by a modest 1%.
Snohomish
Snohomish’s relatively smaller construction pipeline should lead to an environment that’s more favorable to slow and steady rent and occupancy growth – one that should aid in reducing valuation uncertainty in the coming quarters.
Sales Insight
The second quarter of 2024 marked the third consecutive quarter with only five sales in Snohomish. Additionally, smaller transactions dominated with sales in dollar volume declining 74% quarter-over-quarter. Although cap rates jumped to 6.3% (up from 5.3% in Q1), this may be skewed by the overrepresentation of smaller-sized transactions.
Rent/Vacancy Insight
Both rental rates and vacancy rates have been fairly steady throughout the last several quarters in Snohomish. This is to be expected given the relatively smaller construction pipeline and, therefore, limited noise in the data created by new supply.
Pierce
Transaction activity in Pierce has yet to show signs of returning to normalcy with sales down year-over-year in both building sales and total dollar volume.
Sales Insight
With six sales during the quarter for a total of $33 million, Q2 2024 saw a notable decrease in activity from the same period last year (10 sales for $123 million total). But, the transaction activity this quarter did bring further clarity to pricing as cap rates held steady quarter-over-quarter at 5.8%.
Rent/Vacancy Insight
Vacancy has been fairly consistent throughout the last several quarters, declining slightly as the new supply delivered throughout 2022 and 2023 continues to get absorbed. On a year-over-year basis, vacancy rates among smaller product (five to 50 units) declined 30 bps to 5.3%, whereas, among larger product (50 units or more), vacancy dropped 10 bps to 7.7%. In the same period, rental rates increased modestly.
Kitsap
Building sales have picked up again, bringing much-needed liquidity back to the market. And, like most other Puget Sound markets, transaction activity is guiding to an approximate cap rate in the mid-5s.
Sales Insight
Sales activity finally began to show progress as four buildings transacted during the quarter for a total $25 million. This is stronger activity than all of 2023, when there were only three properties sold for a total dollar value of $16 million. Plus, cap rates appear to be stabilizing in the same range as other Puget Sound markets (in the mid-5s).
Rent/Vacancy Insight
A year-over-year drop of 380 bps (to 3.8%) brought the vacancy rate among smaller building sizes (five to 50 units) back in line with longer-term historical averages. However, among larger product, some notable recent deliveries have produced an elevated vacancy rate of 13.7%. On the rental rate side, year-over-year growth has been healthy for each product type at 2% (5 to 50 units) and 3% (50+ units).
About the Dylan Simon and Jerrid Anderson apartment brokerage team
The apartment brokerage team led by Dylan Simon and Jerrid Anderson of Kidder Mathews represents apartment investors, developers, and landowners in the sale and purchase of apartment buildings and development land across the entire State of Washington. The team of 10 brokerage professionals specializes in the sale and purchasing of apartment buildings and development land from $1 million to more than $100 million. For more information, visit simonandersonteam.com.
About Kidder Mathews
Kidder Mathews is the largest fully independent commercial real estate firm in the Western U.S., with over 900 professionals in 19 offices across Washington, Oregon, California, Idaho, Nevada, and Arizona. We offer a complete range of brokerage, appraisal, asset services, consulting, and debt & equity finance services for all property types. Kidder Mathews averages over $10 billion in transaction volume, manages more than 55 million square feet of space, and conducts 2,600 appraisal, consulting, and cost segregation assignments annually. For more information, visit kidder.com.
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Contact
Simon | Anderson Multifamily Investments Team
Dylan Simon, Executive Vice President
Jerrid Anderson, Executive Vice President
Matt Laird, First Vice President
Winslow Lee, Vice President
Max Frame, Vice President
JD Fuller, Associate